GST: Par­tial But Wel­come Progress

GST Coun­cil should ex­pe­dite the rest of it

The Economic Times - - The Edit Page -

The Goods and Ser­vices Tax (GST) Coun­cil has done well to clear a Bill that guar­an­tees to fully com­pen­sate states for five years for any rev­enue loss dur­ing tran­si­tion to the new tax regime. A le­gal back­ing pro­vides com­fort, but there should be ways to pre­vent states from slack­ing off on rev­enue col­lec­tions. GST sub­sumes all in­di­rect levies and avoids cas­cad­ing of taxes, lead­ing to po­ten­tial rev­enue loss for states, but they will gain from be­ing able to tax ser­vices. A pre­cise estimate of gain or loss is not pos­si­ble at this stage. Sen­si­bly, states will be com­pen­sated on the ba­sis of rev­enue pro­jec­tions from 2015-16 — when growth and rev­enue col­lec­tions were buoy­ant.

A pro­tracted slow­down due to de­mon­eti­sa­tion would hurt their rev­enues next year. In any case, the Cen­tre will have to bear an ex­tra fis­cal bur­den if states have to be com­pen­sated for rev­enue short­fall. So, the need is to change the ap­proach to shar­ing taxes with states. There is a com­pelling case to take the cen­tral goods and ser­vices tax (CGST) out of the di­vis­i­ble pool of taxes, leav­ing col­lec­tions from in­come tax, cor­po­rate tax and cus­toms du­ties to be shared with states. Such a change in ap­proach will, at least par­tially, safe­guard the Cen­tre’s rev­enues. The tough part — of fix­ing the tax rates for dif­fer­ent com­modi­ties un­der the four-tier GST struc­ture, de­cid­ing the le­gal­i­ties in the Cen­tral GST Act, the In­te­grated GST Act and the State GST Act, de­cod­ing how to set­tle dis­putes and pre­vent tax­pay­ers from hav­ing to face mul­ti­ple lev­els of the ad­min­is­tra­tion to com­ply with the tax — is re­port­edly still to be set­tled. The GST Coun­cil should drop the anti-prof­i­teer­ing mech­a­nism to os­ten­si­bly keep a check on the pric­ing pol­icy of pro­duc­ers. It goes against the grain of a non-ad­ver­sar­ial tax regime.

The Cen­tre is hope­ful of rolling out GST on July 1. We re­it­er­ate that it makes sense to fix the launch date three months after the fi­nal state and cen­tral GST laws are passed and rules no­ti­fied in or­der to en­able com­pa­nies to be ready with their ac­count­ing sys­tems to meet the re­quire­ments of the new tax.

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